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BUDGET GLOSSARY
Aggregate
economic data
Total expenditures and total production of goods and services
related to the entire economy. For example, aggregate demand is
the total spending on consumption, investment, government
purchases, and net exports, while aggregate supply is the total
amount of good and services produced in the economy.
Appropriation
Sometimes called an “allocation”, refers to the legal authority
granted to the executive by the legislature to spend public funds.
Appropriation legislation varies in terms of its detail; some
provide funds for an entire department, while others provide
funds for specific programs. Typically the term “allocation” will
be in reference to appropriated funds dedicated to a particular
purpose (for instance, the allocation for school building in the
education budget).
Allocative efficiency
This is an economic term that refers to the efficient allocation of
factors of production (labor, capital, land) between competing
uses, with the ultimate goal of maximizing the economic welfare
of consumers. Under standard conditions, a competitive market
demonstrates allocative efficiency. With regard to the efficiency
of public expenditures, see “Performance Budgeting”.
Benefitincidence analysis
It refers to a type of analysis used to determine which group of
people would benefit from a particular public policy.
Budget
It is a comprehensive statement of government finances,
including spending, revenues, deficit or surplus, and debt. The
budget is usually the government's main economic policy
document, indicating how the government plans to use public
resources to meet policy goals. As a statement of fiscal policy,
the budget shows the nature and extent of the government's
impact on the economy. The budget is prepared by the executive
and then generally is submitted to the legislature to be reviewed,
amended, and adopted as law.
Budget cycle
It consists of the major events or stages in making decisions
about the budget, and implementing and assessing those
decisions. The budget cycle usually has four stages: budget
formulation, enactment, execution, and auditing and assessment.
Consolidated budget
Or “unified budget”, is the presentation of the budget in which
revenues from all sources and spending for all activities are
included. In countries where the budget is divided into pieces
(for instance, where there are separate budgets for “current” and
“capital” expenditures) the consolidated budget combines these
pieces. It may also include extra-budgetary institutions. In some
cases, the term may also refer to combining budgets of different
levels of government (federal, state and local).
Debt
Government debt is the outstanding amount that the government
owes to private lenders at any given point in time. Governments
borrow when they run deficits, but reduce outstanding debt when
they run surpluses. Thus debt essentially represents the total of
all annual deficits, minus any annual surpluses, over the years.
Governments can borrow by taking out a loan directly from a
financial institution, such as a bank. Governments can also issue
bonds that are purchased by domestic and foreign businesses and
individuals. Purchasers of government bonds are essentially
lending money to the government with an agreement that the
amounts will be repaid on a certain date and that interest will be
paid periodically. The interest payments, also known as debt
service costs, are a line-item in government budgets.
Expenditure
The term refers to government spending (or outlays) made to
fulfill a government obligation, generally by issuing a check or
disbursing cash. Expenditures can be capital and current.
Capital expenditures are investments in physical assets such as
roads and buildings that can be used for a number of years.
Current expenditures are spending on wages, benefit payments
and other goods and services that are consumed immediately.
Extra-governmental
Or “extra-budgetary”, term refers to government transactions
that are not included in the annual budget. A variety of extrabudgetary arrangements are used, including funds set up under
separate legislation that are financed by revenue used
specifically for that purpose. In addition, state-sponsored
businesses such as utilities or airlines have independence in
certain respects, but the government may ultimately be
responsible for bailing out these businesses when they run into
financial trouble. Extra-budgetary activities may not be subject
to the same level of scrutiny or accounting standards as programs
in the annual budget (though they should be).
Fiscal envelope
This term refers to the aggregate level of expenditures and
revenues (and the resulting deficit or surplus) in the budget. A
government will frequently set the fiscal envelope consistent
with its macroeconomic policy, and then the budget debate will
focus on the composition of expenditures and revenues within
these envelopes.
Fiscal policy
Government actions with respect to aggregate levels of revenue
and spending. Fiscal policy is implemented through the budget
and is the primary means by which the government can influence
the economy. An “easy” fiscal policy is intended to stimulate
short-term economic growth by increasing government spending
or reducing revenues. A “tight” fiscal policy restrains short-term
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demand by reducing spending or increasing taxes and is often
intended to restrain inflation.
Fiscal Year
The government’s 12-month accounting period; it frequently
does not coincide with the calendar year. The fiscal year is
named after the calendar year in which it ends.
Function
As in “functional classification”: international standards (such as
the IMF's Government Finance Statistics) exist for classifying
government expenditures and revenue according to the broad
purposes for which transactions are undertaken. A functional
classification organizes government expenditure according to its
various activities and policy objectives such as health, education,
and transportation.
GDP
(Gross Domestic Product): this is the total value of final goods
and services produced in a country during a calendar year.
Economic growth is measured by the change in GDP from year
to year.
Household income
This is money received by people that may or may not be earned
from productive activities and, after adjusting for taxes, is saved
or spent on consumption of goods and services.
Income transfer
Payments by the government to households intended to provide
income support. For example, major income transfer payments
in the US are for Social Security (old-age pensions),
unemployment compensation, and welfare.
Inputs
Good and services that go into providing government services.
For instance, typical inputs funded by a health budget would be
the salaries of doctors and nurses, the construction of clinics and
hospitals, and the purchase of medical supplies and drugs.
Macro-economic
This term refers to the part of economics that studies the
economy as a whole and particularly topics such as gross
production, unemployment, inflation, and business cycles.
Macro-economics can be thought of as the study of the economic
“forest”, as compared to micro-economics, which is study of the
economic “trees”.
Micro-economic
The term is related to the part of economics that studies topics
such as individual markets, prices, industries, demand, and
supply. Micro-economics can be thought of as the study of the
economic “trees”, as compared to macroeconomics, which is
study of the entire economic “forest”.
Nominal
Actual monetary value in terms of the purchasing power of the
day (at current prices). E.g. nominal terms/nominal values.
Nominal terms do not take into account the effect of inflation on
the real value of money. Annual government budgets are in
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nominal terms. Occasionally multi-year budgets are presented in
real or inflation adjusted terms.
Non-contributory income support
Income payments by government to households where eligibility
for benefits does not depend on having made prior contributions
for that purpose. Welfare payments are an example of this type
of support in the US. In contrast, other types of income support
in the US, such as unemployment benefits and pension
payments, require that the beneficiary have made contributions
(generally through payroll deductions) to the program in order to
receive benefits.
Opportunity cost
The highest valued alternative foregone in the pursuit of an
activity. For example if a sum of money is lent to a friend at no
charge it cannot be deposited in the bank and earn interest. In
this case the forgone interest earnings are the opportunity cost of
lending the money to the friend.
Output/Outcomes
The performance of government programs is assessed by
examining whether they have delivered the desired outputs and
outcomes. Outputs are defined as the goods or services provided
by government agencies. Some examples include: teaching
hours delivered, immunizations provided, or welfare benefits
paid. Outcomes are a broader concept and include the impact of
the program on social, economic, or other indicators, such as
whether an increase in hours taught improved student test scores,
whether more immunizations reduced sickness, or whether
higher welfare benefits increased social equity. Outputs tend to
be easier to measure than outcomes. Further, factors beyond the
control of a government program can affect outcomes, making it
difficult to assess the impact of the program. For instance, even
at a time when welfare benefits are increased, the number of
people in poverty could increase as a result of a slowdown in the
economy.
Performance
Budgeting
Projections
As a general concept, performance budgeting refers to a budget
process that integrates information about the impact of
government spending. In its simplest form, performance
budgeting places more emphasis on the outputs and outcomes
associated with government expenditure and takes this
information into account when setting future funding levels.
Performance budgeting is often associated with giving managers
of government programs more flexibility to achieve specific
policy goals within a set budget. Efficiency of expenditure
therefore is an important goal.
These are estimates of future revenues and expenditures. In
multi-year budgets projections over several years and they are
based on technical and economic assumptions. Budgets often
will present “actual” expenditure and revenue from past years
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and projections or estimates for the current year and the future
budget years. Projections become more uncertain the further
into the future they go.
Real (e.g., real terms/
real value/real growth)
Value measured in terms of the purchasing power of
money at a particular time. For instance, GDP may be measured
in constant 1995 prices by taking the devaluing effect of inflation
into account.
Resources
This term is often used in a budgetary sense to mean the amount
of funds available to the government to spend. Resources
generally will come either from revenues or borrowing.
Revenue
The annual income collected from taxes by the government as a
result of its sovereign powers. Typical revenues include
individual and corporate income taxes, payroll taxes, valueadded taxes, sales taxes, excise taxes.
Sectoral analysis
It refers to the analysis of a particular sector of the economy or
the government to which the budget allocates substantial
resources. This analysis can review a sector such as health,
education, and defense in relation to other sectors, the entire
economy, or its historic levels of support. Military budget
analyses, for instance, can focus attention on how much is spent
on the military in comparison to how much is spent on social
sectors. Analyses of sectors like health and education often
include cross-country comparisons, or comparisons between the
states of a country.
Spending ratios
These are ratios of specific expenditures as a share of GDP or
overall expenditures. These ratios are often used to analyze
spending in particular sectors of the budget.
Take-up rate
It indicates the percentage of people participating in a government
program as a share of all those who are eligible to take part in the
program. Typically not all those eligible for the benefits will
participate in the program. Outreach efforts to inform the eligible
population of available benefits can be used to improve a
program’s take-up rate.
Time-series data
These are data that span over a number of years. Time-series data
are used to analyze expenditure and revenue trends over time.
Total resource availability
See “fiscal envelope”.
Total revenue
Total taxes, user fees, and most other receipts received by the
federal government.
(Budgetary or fiscal) viability
This term generally refers to whether or not the fiscal policy is
sustainable or viable over time, such that available revenues are
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able to cover anticipated costs. A prolonged mismatch between
revenues and expenses can lead to excessive borrowing and an
increase of debt. Consequently the interest payments associated
with a higher level of debt consume a rising share of the budget.
Such increases in borrowing are not sustainable over time. A
viable fiscal policy is when revenues and expenditures are
aligned.
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